Order Cycle Time: How to Optimize This Key Performance Indicator

In a competitive and changing business landscape, companies must periodically measure and review their operational performance. They must also identify potential bottlenecks and look out for any opportunities to improve processes.

Measuring the order cycle time is a vital part in this process. In fact, this is an important key performance indicator (KPI) that must be tracked regularly in order fulfilment.

What is Order Cycle Time?

Order cycle time is the amount of time between when a business receives an order and ships out the order. In simple words, it is the amount of time a business takes to process and ship out an order after it is placed.

Order cycle time can vary depending on several factors such as nature of the business, product complexity, order volumes, demand surges, etc.

The longer the order cycle, the more is the time a customer has to wait to get the order. As a result, lesser is the chance for a business to make an impression on customers.

On the other hand, a shorter order cycle means more orders can be processed in less time, thereby increasing productivity and profitability. This can improve customer satisfaction and give the business a competitive advantage.

Order cycle time is defined slightly differently in the fulfilment industry. It is the time between when an order is received and finally handed off to a logistics carrier for shipment. In other words, it does not include the shipping time. It includes the time it takes to process the order, pick and pack items and hand off the order to a carrier.

Why Businesses Must Look at Order Cycle Time

The rapid growth of ecommerce in recent times has made it vital for businesses to analyze their order fulfilment strategies and cycle times. In the highly competitive online shopping space, consumers expect their orders to be processed and shipped quickly. Businesses know that they must minimize cycle times and get orders out quickly to meet these expectations. Any delay in order processing or shipping can mean losing out to competition.

Order cycle time is also a key indicator of operational efficiency. A business can look at an individual order cycle to identify potential bottlenecks. It may also look at the average cycle time over a period for detailed analysis.

By reviewing the order cycle time, a business can determine how efficient or inefficient its operations are. It can determine whether orders are processed and shipped on time. If not, what are the key challenges in this process? More importantly, what steps should the business take to overcome them? For example, does it need to order inventory more frequently to expedite the process?

Let us look at a few ways businesses can optimize this process and reduce the order cycle time.

How to Improve the Order Cycle Time

The warehouse is the key area of focus in the order fulfilment process. So, to reduce the order cycle time, the primary goal of a business should be to optimize the workflow in the warehouse. This can be done by streamlining warehouse processes such as picking, packing and shipping orders more efficiently. This can also be done by providing warehouse staff with the tools they need to accelerate receiving, issuing and shipping orders. Not only can these tools reduce the cycle time, but they can minimize errors, eliminate unnecessary steps and enhance accuracy in warehouse operations.

Advanced warehouse and inventory management software can help a business reduce cycle times by optimizing processes. Technology can automate most of the manual, time-consuming tasks in warehouse operations. It can also provide real-time visibility of inventory across various locations, including on-hand, on-order and in-transit. This enables a business to maintain optimum inventory and prevent stockouts as well as surpluses.

Additionally, technology can monitor stock levels and automate stock replenishment and receiving. It can even sense changes in customer demand and help a business prepare for a spectrum of possible demand situations. Such capabilities can be highly beneficial for a business amid prevailing uncertainty.

Finally, businesses must measure and review the order cycle times over a period. This would help identify tasks that are taking more time than others and should therefore be optimized first.

Learn how GEP can help your business automate order management.